international financial markets


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international financial markets

  1. 1. International Financial Markets & Sources of funding for MNC’s
  2. 2. Discussion Plan <ul><li>Types of Exposures </li></ul><ul><li>Sources of Long Term Funds </li></ul><ul><li>Sources of Short Term Funds and Cash Management in MNC’s </li></ul>
  3. 3. International Financial Environment International Monetary System International Banks MNC’s International Financial Institutions Financial Intermediaries International Capital markets Foreign Exchange Market International Monetary Fund Euro Money Market
  4. 4. Euro Money Market <ul><li>Euro Currency </li></ul><ul><li>Euro Deposits </li></ul><ul><li>Euro Loans </li></ul><ul><ul><li>Loan syndication </li></ul></ul><ul><li>Euro Banking </li></ul><ul><ul><li>Euro Banking and Central Banks </li></ul></ul>
  5. 5. Foreign Bonds International Capital Markets International Bond Market International Equity Market Euro Bonds Euro Bonds Foreign Equity <ul><li>Yankee Bonds </li></ul><ul><li>Samurai Bonds </li></ul><ul><li>Bulldog Bonds </li></ul><ul><li>Euro/Dollar </li></ul><ul><li>Euro/Yen </li></ul><ul><li>Euro/Pounds </li></ul>ADR GDR
  6. 6. International Bond Market <ul><li>Foreign Bonds Vs Euro Bonds </li></ul><ul><li>International Debt Instruments </li></ul><ul><ul><li>Straight Euro Bonds </li></ul></ul><ul><ul><li>Convertible Euro Bonds </li></ul></ul><ul><ul><li>Bonds with warrants </li></ul></ul><ul><ul><li>Currency cocktail </li></ul></ul><ul><ul><li>Yankee Bonds </li></ul></ul><ul><ul><li>Samurai Bonds </li></ul></ul><ul><ul><li>Floating Rate Notes (FRN) </li></ul></ul><ul><ul><li>Bulldog Bonds </li></ul></ul>
  7. 7. International Equity Market <ul><li>GDR </li></ul><ul><li>ADR </li></ul><ul><li>EDR </li></ul><ul><li>Portfolio Investment vs FDI </li></ul>
  8. 8. Investors Company Lead managers & Syndicate Luxemburg Stock Exchange Custodian Depository Shares Mechanism of GDR’s GDR’s GDR’s GDR’s
  9. 9. Company Lead managers & Syndicate English Legal Counsel Indian Legal Counsel Investors Luxemborg Stock Exchange Custodian Luxemborg listing Agent Depository PR consultant Auditor Indian Legal Counsel English Legal Counsel Euro clear Cedel & DTC GDR’s Shares Listing Agreement Depository Agreement Subscription Agreement Mechanism of GDR’s
  10. 10. GDR’s <ul><li>Pre Issue Discuss Strategy, Obtain legal advice, prepare tentative plan of issue </li></ul><ul><li>Week 0-4 Nominate Lead Manager, co managers, depository, bankers etc. </li></ul><ul><li>Week 5-7 Meetings between LM, auditors, legal advisors, preparation of official circular </li></ul><ul><li>Week 8 LM completes & sends preliminary offer offer document to co-managers & underwriters. </li></ul><ul><li>Week 9 Road shows and investor meets </li></ul><ul><li>Week 10 Launch & syndication by LM, foreign listing, trading approval etc. </li></ul>
  11. 11. GDR’s <ul><li>Advantages </li></ul><ul><ul><li>Easy access to foreign capital markets </li></ul></ul><ul><ul><li>Lower leverage and reduces interest rate burden </li></ul></ul><ul><ul><li>No Cash redemption </li></ul></ul><ul><ul><li>Free of foreign exchange risk </li></ul></ul><ul><ul><li>Stabilisation effect from enhancing trading facility </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Immediate EPS dilution </li></ul></ul><ul><ul><li>Dividends not tax deductible </li></ul></ul><ul><ul><li>No downside protection for investors </li></ul></ul>
  12. 12. FCCB’s <ul><li>Advantages </li></ul><ul><ul><li>Sell Shares at Premium </li></ul></ul><ul><ul><li>No immediate EPS dilution </li></ul></ul><ul><ul><li>Appeals to defensive investor </li></ul></ul><ul><ul><li>No bond repayment if converted </li></ul></ul><ul><li>Disadvantages </li></ul><ul><ul><li>Increase leverage </li></ul></ul><ul><ul><li>Increase interest burden </li></ul></ul><ul><ul><li>Foreign exchange risk </li></ul></ul>
  13. 13. External Commercial Borrowings (ECB’s) <ul><li>Automatic Route </li></ul><ul><li>Approval Route </li></ul>
  14. 14. <ul><li>INTERNATIONAL CASH MGMT </li></ul><ul><li>ACCOUNTS RECEIVABLE MGMT </li></ul><ul><li>INVENTORY MANAGEMENT </li></ul><ul><li>SHORT-TERM FINANCING </li></ul>Working Capital Management in MNC’s
  15. 15. Working Capital Management in MNC’s <ul><li>Objective of Cash Management in MNC- </li></ul><ul><ul><li>To maximize return by proper allocation of short term investments </li></ul></ul><ul><ul><li>To minimize cost of borrowing by accessing different money markets </li></ul></ul>
  16. 16. INTERNATIONAL CASH MGMT <ul><li>Key Areas: </li></ul><ul><li>1. Organization </li></ul><ul><li>2. Collection/Fund Disbursement </li></ul><ul><li>3. Interaffiliate Payments Netting </li></ul><ul><li>4. Excess-Funds Investment </li></ul><ul><li>5. Optimal Global Cash Balances </li></ul><ul><li>6. Cash Planning/Budgeting </li></ul><ul><li>7. Bank Relations </li></ul>
  17. 17. Centralised Vs Decentralised CM <ul><li>Advantages – </li></ul><ul><li>Efficient liquidity levels </li></ul><ul><li>Enhanced profitability </li></ul><ul><li>Quicker headquarter action </li></ul><ul><li>Decision making enhanced </li></ul><ul><li>Better volume currency quotes </li></ul><ul><li>Greater cash management expertise </li></ul><ul><li>Less political risk </li></ul>
  18. 18. <ul><li>Disadvantages – </li></ul><ul><li>Complete centralization is practically impossible </li></ul><ul><li>Local problems in dealing with customers </li></ul><ul><li>Conflict of interest among parent and subsidiary </li></ul>Centralised Vs Decentralised CM
  19. 19. Techniques to optimise cash flows <ul><li>Accelerating cash inflows </li></ul><ul><li>Managing blocked funds </li></ul><ul><li>Leading and Lagging </li></ul><ul><li>Netting </li></ul><ul><li>Transfer Pricing </li></ul><ul><li>Investing excess cash </li></ul>
  20. 20. Netting <ul><li>Offset payments of affiliate receivables/ payables so that net amounts only are transferred </li></ul><ul><li>Bi lateral Netting </li></ul><ul><li>Multilateral Netting </li></ul>
  21. 21. Transfer Pricing China India Parent USA UK China India Parent USA UK   4 m $   1 m $   6 m $   1.75 m $   5.25m $   1 m $   2 m $   3.5 m $       2 m $
  22. 22. Sources of short term funds <ul><li>Trade Credit </li></ul><ul><ul><li>Pre Shipment </li></ul></ul><ul><ul><li>Post Shipment </li></ul></ul><ul><li>Bill Discounting </li></ul><ul><li>Export Financing </li></ul>